August 31, 2011

DOJ Files Suit to Block AT&T/T-Mobile USA Merger

Updated at 4:45 pm

The Justice Department today filed suit to block the merger between AT&T Inc. and T-Mobile USA, alleging that the $39 billion transaction would substantially lessen competition for mobile wireless telecommunications services across the United States.

AT&T responded that it will “vigorously contest this matter in court,” and in a statement said it plans to ask for an expedited hearing. “We remain confident that this merger is in the best interest of consumers and our country, and the facts will prevail in court.”

The suit is a bold move for DOJ's Antitrust Division, which has been criticized in recent years for failing to stop other high-profile unions. The AT&T merger would create the nation’s largest cell phone network by combining the number two and number four companies.

“The department filed its lawsuit because we believe the combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for their mobile wireless services,” said Deputy Attorney General James Cole at a press conference this morning.

Cole noted that AT&T and T-Mobile compete head-to-head in 97 of the nation’s largest 100 cellular marketing areas as well as nationwide for business and government customers. “Were the merger to proceed, there would only be three providers with 90% of the market, and competition among the remaining competitors on all dimensions—including price, quality, and innovation—would be diminished,” he said.

The case, filed in U.S. District Court for the District of Columbia, has been assigned to Judge Ellen Huvelle. Twenty-five DOJ lawyers are listed on the complaint. The suit asks that the court declare the merger violates Section 7 of the Clayton Act and that the companies be enjoined from combining.

AT&T said it was “surprised and disappointed by today’s action, particularly since we have met repeatedly with the Department of Justice and there was no indication from the DOJ that this action was being contemplated.”

AT&T this week made a last-ditch effort for approval, offering to bring 5,000 overseas customer service jobs back to the United States. The merger was supported by the Communications Workers of America, which called DOJ’s decision to block the deal “simply wrong...The DOJ’s action has put good jobs and workers’ rights at the bottom of the government’s priorities.”

The company also rallied the support of 11 state attorneys general, who sent a letter to DOJ last month urging approval of the deal, and more than 20 governors.

AT&T claimed the merger would give it the spectrum needed to develop new, high-tech networks, and would create efficiencies.

But DOJ didn’t buy it, concluding that AT&T failed to demonstrate any efficiencies “would be sufficient to outweigh the transaction’s substantial adverse impact on competition and consumers.” The government also found that “AT&T could obtain substantially the same network enhancements that it claims will come from the transaction if it simply invested in its own network without eliminating a close competitor.”

The deal was strongly opposed by consumer and media advocates, as well as competitors led by Sprint.

"This ought not to be a big surprise,” said Media Access Project Senior Vice President and Policy Director Andrew Jay Schwartzman in a statement. “This is arguably the most anti-competitive move in recent American economic history. It is heartening that the Department of Justice has withstood withering political pressure from AT&T to do the right thing for the American public.”

The merger also requires approval by the Federal Communications Commission. FCC Chairman Julius Genachowski in a statement said, “Competition is an essential component of the FCC's statutory public interest analysis, and although our process is not complete, the record before this agency also raises serious concerns about the impact of the proposed transaction on competition."